One of the effects of the early stages of the financial crisis was to highlight the opaque nature of the over-the-counter (OTC) derivatives market; a market where there are few reporting requirements and little centralised clearing of contracts.
The G20 agreed in September 2009 that all standardised OTC derivative contracts should be traded on exchanges or on electronic trading platforms and cleared through central counterparties, that OTC derivative contracts should be reported to trade repositories and that non-centrally cleared contracts should be subject to higher capital requirements.
In response, the European Commission published its final proposal for a European Market Infrastructure Regulation (EMIR) on 15 September 2010. EMIR introduces:
- a reporting obligation for OTC derivatives;
- a clearing obligation for eligible OTC derivatives;
- measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives;
- common rules for central counterparties (CCPs) and for trade repositories; and
- rules on the establishment of interoperability between CCPs will be introduced for the European Union.
The EMIR is currently being negotiated in the European Council and Parliament. As it is a Regulation, The EMIR will be directly applicable in UK law. It is envisaged that the EMIR will come into force in 2012.
UPDATE 30 March 2012: The European Parliament has now formally adopted the text of the European Market Infrastructure Regulation – see this post, which also summarises when EMIR will be implemented.
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